by John D. Darer CLU ChFC CSSC RSP
With baby boomers and retirees seeking stable guaranteed income these days it's more likely than not that they will at some point consider annuities. Some annuity terms and phrases like "certain and life"can be confusing and I want to help ease your pain here.
This post is the beginning of a multi-part Annuity 101 series that will be helpful to anyone considering annuities, whether you are a retiree or getting close to retirement; or you are a personal injury plaintiff or a claimant in a wrongful death action looking at a structured settlement annuity; or a seller of high value low basis property or seller of a business considering a structured installment sale; a plaintiff attorney or law firm who is contemplating structuring legal fees; or a celebrity who is looking to structure endorsement fees.
So what is "certain and life"? You may encounter annuity proposals which state "X$ per month certain and life" or "X$ per year for life with 30 years certain" or simply "X$ per month for 10 years certain". Simply put the certain period represents the number of years that will be paid whether or not the measuring life survives the entire payment schedule.
A certain period is sometimes mislabeled a guarantee period. While the terms would be synonymous if the annuity were to pay for a fixed period certain, the misnomer comes when the annuity includes a lifetime benefit. The reason it's a misnomer is fundamental to what an annuity is. An annuity is an insurance contract guaranteed by the full faith and credit of the insurance company that issues it. With a lifetime benefit the benefits ARE CONTRACTUALLY GUARANTEED. Even an annuity that has no certain benefit such as a lifetime only annuity is contractually guaranteed. This misnomer can lead to documentation errors. It is better to use the term "period certain" to describe payments that will be made "come rain or shine" whether living or not.
With all due respect to Ben Franklin the continued parroting of an 18th Century saying " nothing can be said to be certain except death and taxes" is inaccurate today because for people who qualify for some structured settlements the only thing certain is death and their annuity payments.
Look for more episodes of our Annuity 101 information series coming soon.
in the meantime, click the following link for more information and explanation of the types of annuity payments in a structured settlement, or visit the glossary of structured settlement settlement terms and keywords and phrases for settlement planning and financial planning terms at 4structures.com